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Exclusion of a partner from an LLC in Bulgaria.

Exclusion of a partner from an LLC

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In any organization, conflicts and misunderstandings can arise, which sometimes require serious decisions. This also applies with full force to the relations between partners in limited liability companies (LLCs) in Bulgaria. One of the ways to resolve such conflicts may be the exclusion of a partner from a limited liability company (LLC).

The procedure for excluding a partner from an LLC is complex and often requires careful planning and legal advice. Usually, before taking steps to switch off, people turn to corporate law lawyerto ensure that all legal requirements are met. This is important, since the correct conduct of the procedure minimizes the risk of litigation and ensures that the company's actions comply with the legislation.

Often when forming a company, the partners do not pay enough attention to the content of the company contract, which can later lead to disagreements and legal ambiguities regarding the procedure for excluding a partner. It is important that the contract is drawn up carefully, reflecting all possible scenarios, including those for the exclusion of a partner.

Exclusion of a partner is a procedure that takes place without the consent of the respective partner and is of a coercive nature. The law requires strict adherence to certain procedures to ensure the legality of this activity. This article offers information that is useful for both the exclusionary and the excluded partner. The consideration of the problems related to the lawful conduct of the exclusion procedure, the protection against unlawful exclusion, as well as the analysis of case law, is of key importance for all stakeholders.

Case law on the subject of partner exclusion can provide valuable guidance on how the law is applied in different situations. Understanding this practice is important both for partners who are considering excluding their partner, and for those who may be affected by such an action. In this context, knowledge of the legal frameworks and procedures for protection against unlawful exclusion becomes particularly important.

In addition, the exclusion of a partner can have long-term consequences for the structure and operations of the company, as well as for the personal and professional relationships between the other partners. For these reasons, the decision to exclude should be made carefully and after a thorough discussion of all possible consequences.

When can a partner be excluded from an LLC?

In any business, including in limited liability companies (LLCs), conflicts and misunderstandings may arise between partners. Such situations sometimes require the adoption of serious measures, such as the exclusion of a partner from the LLC. This is especially relevant in LLCs with two partners with equal shares, where a “race” often arises which of them to exclude the other first.

The exclusion of a partner may be necessary for various reasons, the most common being the default of the obligations to contribute the shares in the capital of the company. In such cases, the partner must be notified in writing by the manager of the impending dismissal and be given an additional period of at least one month to fulfill his commitment. If he fails to fulfill his obligations within this period, the procedure for his dismissal may be triggered.

Among the other grounds for excluding a partner from an LLC arefailure to comply with the resolutions of the general meeting, actions against the interests of the company, as well as failure to make additional cash contributions if the partner has not exercised his right to leave.Exclusion of a partner and manager from an LLC is a delicate process that requires strict adherence to legal procedures in order to avoid the occurrence of legal disputes.

When such problems arise between partners in an LLC, it is important to seek the help of an experienced corporate lawyer. Elan Consulting specialists can provide valuable legal advice, assist in the review and preparation of the necessary documents, and ensure that any action to exclude a partner is in accordance with the law.

What are the grounds for excluding a partner?

When discussing the prerequisites for the exclusion of a partner from an LLC, it is important to emphasize that in such a company each partner has the obligation to actively participate in the management of the company and to assist in its activities. This is a fundamental difference from the Joint Stock Company (JSC), where the obligations of the shareholders are more limited and focused on their investment role.

It is the lack of active participation and cooperation in the LLC that can be grounds for excluding a partner. An example of such behavior is a situation where the partner does not engage in company affairs, does not participate in the conclusion of transactions and does not visit the workplace, limiting himself only to expecting dividends. Such cases often lead to dissatisfaction among the other partners and may trigger the initiation of an exclusion procedure.

In order for the exclusion of a partner to be lawful and justified, the courts and case law in Bulgaria in general require the existence of concrete and reasoned evidence of non-performance of obligations by the partner or of manifest abuses. General statements such as “not cooperating with company affairs” or “not coming to the office” are not accepted. Instead, it requires the presentation of documented evidence such as written records, documents, employee testimonies, invitations to a general meeting, etc.

Another common motive for exclusion is the systematic failure to implement the decisions of the general meeting. This means that a single failure to comply with such a decision is usually not sufficient to initiate the exclusion procedure. It is necessary to prove that violations are protracted and systematic.

It is important to emphasize that the exclusion of a partner should be a last resort and apply only after all other options for correcting the situation have been exhausted. After all, the goal is to ensure the normal functioning and development of the company, protecting the interests of both the company and all its partners.

What is the procedure for excluding a partner?

The procedure for excluding a partner from an LLC is strictly regulated and requires careful compliance with the provided steps in order to ensure the legal certainty of the actions and avoid possible future disputes.

Written warning

First of all, the partner intended for exclusion must be notified in writing of this. This notification is usually made by a notary invitation, in which the grounds for exclusion are clearly stated. Such a warning is mandatory so that the partner has the opportunity to familiarize himself with the reasons for his possible exclusion and take steps to eliminate the reasons, if possible.

Decision of the General Assembly of Ltd

After receiving the warning, the decision to exclude the partner is taken by the General Meeting of the Ltd. It is important to note that even in the presence of grounds for exclusion, the other partners have the right to decide not to exclude the partner, giving him a second chance. Thus, the exclusion takes place at the discretion of the general meeting, with each partner having the right to vote, except the one subject to exclusion.

Publication in the Commercial Register

If a decision is made to exclude the partner, this fact should be recorded and published in the Commercial Register. For this purpose, the manager of an LLC usually authorizes a person, often lawyer specializing in corporate and company lawto carry out the necessary procedural actions. This includes the preparation and submission of the necessary documents to the register to reflect the change in the structure of the partners in the company.

In the process of excluding a partner from an LLC, it is extremely important to comply with all legal requirements and procedures in order to ensure the legitimacy of the actions and to prevent possible future disputes or lawsuits.

Exclusion of a partner in the case of equal shares

The exclusion of a partner for equal shares in a limited liability company (LLC) is a situation that requires special attention, since often in such companies there are only two partners, each of them owning an equal share of the capital. In the event of serious conflicts between them, which cannot be resolved by mutual concessions, the question arises of the procedure for excluding one partner.

Exclusion procedure for equal shares

Where the exclusion issue is not specifically regulated in the Company Agreement, the decision shall be taken by a majority of 75% of the other partners. It is important to note that when holding the general meeting for exclusion, the excluded partner does not participate in the vote.Thus, in an LLC consisting of two partners with equal shares, the vote of one of them is sufficient to exclude the other, if the grounds for this set out in the previous parts of the article are present.

Protection against exclusion of a partner from the Ltd

Protection against unlawful exclusion from a limited liability company (LLC) is an important aspect that ensures a balance between the rights of the partners and the interests of the company.

Action for annulment of the decision of the General Meeting

The main legal remedy against unlawful exclusion by the LLC is the filing of a claim for annulment of the decision of the general meeting. This action seeks to challenge the exclusion decision if it is not in accordance with the legal requirements and the company agreement.

In what period should an action be filed for annulment of the decision of the General Meeting of the Ltd.?

14-day period:The partner who wishes to challenge the decision on his exclusion must file an application for annulment within 14 days of becoming aware of the decision. This period is preclusive, which means that after its expiration the right to appeal is lost.

Maximum period of 3 months:Moreover, the application would not be allowed to be considered if it was filed later than 3 months after the day on which the decision was taken by the general meeting, regardless of whether there is evidence that it was aware of its exclusion.

It is important to note that if the partner is duly served with an invitation to convene the general meeting, the period for annulment of the decision begins to run from the date of the meeting, regardless of whether the partner was present or not. This means that even in his absence, the partner is responsible for informing himself about the decisions taken at the meeting and taking timely action in case of need of appeal.

What else is important to know about the exclusion of a partner from an LLC?

When considering issues related to the exclusion of a partner from an LLC, it is important to take into account some additional aspects that may have a significant impact on the procedure and its outcome.

If a partner has successfully challenged the decision of the general meeting on his exclusion and the court has annulled this decision, the other partners may initiate a new exclusion procedure. However, this depends on the grounds on which the original decision was based and on the reasons for its annulment.

According to the case law of the Supreme Court of Cassation (SCC), if the original exclusion decision is overturned on substantive grounds, i.e. the court has determined that the infringements committed by the excluded partner are insignificant or unfounded, a new exclusion procedure cannot be initiated for the same infringements. This means that the facts stated in the previous warning cannot be used again.

On the other hand, if the first exclusion procedure is canceled due to admitted procedural violations, the facts entered in the initial warning can be used to initiate a new procedure.

One of the key aspects of the exclusion of a partner is to provide the person with a real opportunity to correct his or her behaviour, with a view to continuing the normal activities of the company. This ensures that the exclusion procedure is not used as a means of unjustified removal of partners, but is based on objective and substantial reasons.

The exclusion warning must be formulated in such a way that it does not give the impression of a pre-formed will to exclude the partner. This means that the warning must be objective, reflect the specific violations and make it possible to eliminate them.

Thus, when considering the procedure for excluding a partner from an LLC, it is important to consider both legal requirements and the need for fair and objective treatment of all parties to the process.

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Frequently Asked Questions

What would be the valid grounds for excluding a partner from an LLC?

Valid grounds for excluding a partner include lack of active participation in the management of the company, systematic failure to comply with the decisions of the general meeting, actions contrary to the interests of the company, as well as failure to fulfill financial obligations such as contributions to the capital of the company.

What evidence is required when excluding a partner?

The case law in Bulgaria requires the availability of concrete and objective evidence of the violations committed by the partner. This may include written documents, duly served invitations to attend a general meeting, records of non-attendance at the meeting and other relevant evidence. To prove the validity of the procedure for dismissing a partner, when he was not actively involved in the management of the company, testimonies from employees of the company are also accepted!

Can an excluded partner in an LLC appeal a subsequent decision on his dismissal as a manager?

According to the case law and the interpretations of the Supreme Court of Cassation (SCC), an excluded partner in a Ltd usually does not have the right to appeal a subsequent decision of the General Meeting of Shareholders (OJSC) for his dismissal as a manager. This position is supported by the fact that the exclusion as a partner precedes the dismissal as manager, thus, after the exclusion, the person loses his rights as a partner, including the right to appeal decisions of the JSC. The OSCE has the full competence to appoint and dismiss the manager of the company, and this decision may be based on various hypotheses and circumstances. The termination of the statutory legal relationship between the manager and the company shall be effected by a decision of the CSC, which shall be final and binding. In principle, an excluded partner loses the right to participate in the CSO and to influence decision-making in the company, including the decision on his dismissal as a manager. This means that once the partner has been expelled, he cannot appeal subsequent decisions of the JSC, including those for his dismissal as manager. Claim under Art. 74 TC (Commercial Law) to cancel such a decision is permissible only for persons who are still in membership relations with the company. However, the issue remains the subject of discussions and different interpretations in judicial practice, especially when it comes to complex situations in which the partner is also the manager of the company. In some cases, the lack of clear case law on this issue can lead to divergent decisions by different courts.

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